Field Note

Water and
Sanitation
Program Tapping the Market:
An international Private Sector Financing of
Rural Water Supplies in
partnership to help
the poor gain sustained
access to improved
water supply and
sanitation services Cambodia and Vietnam

East Asia and

Pacific Region

Door-to-door Water Sales Equipment and Water Source

F
inancial constraint is a major challenge in scaling up Rural Water Supply (RWS)
service delivery in the developing regions of the world. To meet the Millennium
Development Goal (MDG) of halving the number of people without access to clean
water and sanitation, the World Commission on Water estimates the shortfall of global
RWS resources at approximately 140 percent (US$ 180 billion required vs. US$ 75 billion
available).1 However, there is strong evidence that the private sector, which can provide
up to 100 percent of infrastructure investment costs, can help to effectively fill this gap.
Vietnam and Cambodia provide instructive examples where the private sector has stepped
into RWS provision investing its own funds, and leveraging funds from a fee-paying
consumer base. The growth in private sector investment in RWS in the two countries has
occurred in response to consumer demand that was not being met by public services.
Importantly, Governments in both countries recognize and support these private
sector initiatives.
1
Water – A Priority for Responsible Growth and Poverty Reduction – An Agenda for Investment and Policy Change,
The World Bank, January 2001.
 T
his vibrant if relatively small-scale
and informal private sector
supplying RWS services
throughout Vietnam and Cambodia
consists both of enterprises that sell
water and others that install water
source technologies. Operating in
tandem, they provide either different
services for different populations or
different water to the same consumers
for various end uses. However micro
and small-scale, they are able to earn
a reasonable profit by providing
services at the market rate.
Significantly, private sector providers
have shown themselves to be
sustainable operations that grow and
tailor their businesses to the shifting
demands and preferences of their
consumer base.
While it is difficult to accurately
estimate the total annual investment
by these enterprises or by end-users,
it is likely that private and/or user
investment in the sector far exceeds
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
public investment. There is need to
appreciate, capitalize on, and foster
this substantial but unacknowledged
investment, allowing public resources
to be directed to areas where the
private sector may not have
comparative advantages.
In view of the above, public
sector players in the water sector
need to rethink how best to use their
resources and whether they should
at all invest in infrastructure when it
can be financed from non-
institutional resources. Instead, these
public funds are better spent to
create the demand that is required
to meet the millennium’s water and
health objectives, as well as fuel end-
user investment in support of private
sector suppliers. Of critical value
also is the channeling of public
funds towards promoting safe water
handling and sanitation among
users to optimize the health
2 promoting potential of water.
The RWS experience of the two
countries analyzed here generates a
clearer appreciation of the relative
opportunities and limitations to
increased private sector activities in
the sector. The unmistakable
advantages of the private sector in
RWS provision emerging from the
analysis include leveraging of funds
to the sector, the benefits of demand
driven services, and the cost
effectiveness not only of the private
sector but also of the public
investments made in support of the
private sector. Both by virtue of its
customer-oriented structure and
because it is able to provide cheaper
more localized services than
government suppliers the private
sector can provide a viable preferable
alternative to public investment.
While pointing to a clearly
unstoppable and encouraging future
for private investment in the RWS
sector, the positive experience of
Vietnam and Cambodia also provides
an informed basis to consider how
private investors in the sector can be
encouraged and best served in the
future by donors and governments
globally.
Private Sector Presence in
RWS in Vietnam and Cambodia
T
he RWS market in Vietnam and
Cambodia is served by a growing
private sector made up of thousands
of micro enterprises that fall into two
categories: (i) Technology Supply
Enterprises, which are primarily
production/supply chains of
enterprises that make, distribute, sell,
and install water access, storage, and
purification technologies. The
technologies include tubewells, hand/
electric/diesel pumps, rainwater
storage jars/tanks, and water purifiers.
Except in the case of large well drilling
operators these suppliers generally
Piped Water Source and Water Tower
provide household technologies that
enable their purchasers to access,
store or purify water for which they do
not have to pay. (ii) Water Supply
Enterprises, which sell water. They
range from informal enterprises that
collect and transport water and sell it
door-to-door, to piped-water scheme
operators that provide pressurized
metered water directly into individual
households. The latter are essentially
small utility companies providing water
to tens, hundreds or thousands
of households.
The nature and size of the private
sector, and the services it provides,
vary from one country or place to
another, and are inevitably tailored to
local scenarios including water
resource availability, population
density, consumer income, user need
and preference, extent of regulation,
and others. In Cambodia these private
enterprises have grown rapidly over
the last decade in an increasingly
investment-friendly environment. The
lack of sector regulation has provided
an enabling environment for the
development of thousands of micro
water supply enterprises. In Vietnam
where markets are more fully
developed, in the southern province
of Tien Giang, for instance, non-state
water companies are serving about 60
percent of its 1.6 million population.
These include individually invested
utilities generally financed with
borrowed capital; cooperative invested
and managed systems; and user-
group systems where the capital is
raised upfront by user investors. In
Central Vietnam likewise, households
purchase on-site water sources (eg.
handpumps) and in response a
private sector supply market has
developed. These entrepreneurial
enterprises in both countries offer
2
For example in a single commune in Cambodia, metered water from a piped scheme costs from 30 to 50
US cents per cubic meter, whilst motorcycle-delivered untreated surface water costs US$ 2.5 per cubic
meter. While rainwater is harvested for free, it is essentially worth US$ 2.5 per cubic meter, as it substitutes
as a source of water for drinking/cooking.
interesting lessons about financing
arrangements, experimental regulatory
frameworks, user willingness to pay,
and consumer water use.
The demand for water is such that
consumers are compelled to use more
than one source of water. The
importance of market segmentation to
the end-users is demonstrated by their
willingness to pay for water at
differential costs.2 In any private or
public investment targeting users, it is
thus imperative to consider consumer
water-habits and preferences.
To help devise strategies that cater
to the diverse and growing volume of
water needs and user preferences, a
valuable body of evidence from three
cases drawn from Cambodia and
Vietnam is presented here.
The Experience of Cambodia
In the currently unregulated RWS sector
in Cambodia, private sector activity is
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
flourishing; from individual informal
water collectors and sellers, to small and
unregulated family-run piped schemes,
to larger experimental piped schemes
that supply whole villages.
Collecting water from open water
sources, community pumps, and open
wells, water sellers in rural Cambodia
transport it for sale generally on trailers
equipped with 200-liter water tanks
pulled by a motorcycle. These informal
enterprises with low entry-level costs
go into business with their own capital.
Typically they sell water at around US$
2.50/ m3. Though untreated, this water
is purchased for consumption i.e.
drinking and cooking. Most families
usually boil this water prior to
consumption, but not always.
Serving an identical market and
operating in tandem are very small
pump-and-pipe operators that operate
3
 in the more densely populated areas
of villages. They erect small (2-6 m3)
water storage tanks usually supported
by wooden structures and supply
untreated water drawn from rivers,
drilled wells, or ponds through pipes
to individual households. Depending
on the available water source, and
cost to develop that source for
extraction, a small enterprise supplying
water to 20-60 households might cost
between US$ 1,000 to US$ 8,000.
The Mini Reseaux d’Eau Potable
(MIREP) program has six ongoing
projects to pilot rural village-level
privately invested and operated
schemes. These projects are targeted
to supply full access to villages that
consist of 250-400 households, and
their total capital investment ranges
from US$ 17,000 to US$ 66,000.
Three of these systems are in
operation, and the rest due to become
operational later this year. MIREP
supplies institutional, financial, and
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
technical support for the development
of the piped water systems,
which helps overcome the most
critical constraints to private
sector investment.
The schemes in operation are
working well. Investors are satisfied
4
with the institutional arrangements, the
financing, and their ability to collect
water tariffs. The connection rates
attained thus far are impressive, and
the water cost lower than for water
supplied by either the water sellers or
the informal pump-and-pipe
operators that were replaced.
Piped Water Scheme Development in
Tien Giang Province in Vietnam’s
Mekong Delta
In the Mekong Delta of Vietnam,
drilled water access is prohibitively
expensive for individual households
in some areas. As in Cambodia,
almost every household harvests
rainwater as well as water from open
water sources such as ponds and
canals. To a lesser degree than in
Cambodia users also rely on informal
water-seller businesses that source
water from community handpumps or
other available sources, and transport
it for sale door-to-door.
In the early nineties, a number of
small, initially unregulated privately
invested piped schemes that sourced
water mainly from tubewells emerged
in response to an obvious demand
and willingness to pay. Investment
Rain Water Storage Jars
capital was usually raised from the
consumers, by charging a large
upfront connection fee, typically
amounting to US $60-100. For this
amount, the users did not own a share
of the equipment but were still willing
to finance at this market connection
rate. Alternate management
arrangements such as informal user-
group invested systems (backed by
commune level government), and
cooperative managed systems also
emerged. In these cases, members
invested (usually US $60) in a fund
that was used to build a system.
A Provincial Government decree
in 1998 banned private investors
from raising investment capital from
their target consumer base, but
allowed user groups and cooperatives
to do so. Some private investors
continued to raise capital by providing
a reduced water tariff until such time
as the user investment is repaid. This
is an attractive proposition for private
investors, as these businesses have
inherently large upfront investments,
and relatively low operating
expenditures (See Box 1).
Growth and Coverage
The growth in private, cooperative, and
user-managed systems has been
staggering.3 Since the decree was
issued in 1998, the number of user-
group invested systems has grown by
800 percent, cooperatives by 230
percent, and private investors by 130
percent.4 Of the total population of
1.6 million people in the province, 65
3
Of the current 415 schemes in operation, 49 are
invested by state owned enterprises, 80 by private
enterprises, 28 by cooperatives, and 258 by user
groups. Most of these stations supply untreated
groundwater, a few supply treated surface water.
4
In all cases, the government provides technical
design support and has a series of pre-designed
systems that are tailored for varying populations
and water source conditions.
 Box 1
Creating a Viable Water Supply Enterprise
Mr Nha’s water system was built
in 2000 to supply water in Long
Vinh Commune, Tien Giang
Province. It draws water through
a pipe from a canal that is one
kilometer away into an 800 m2
lined holding tank. From here it
is pumped through a simple
purification plant, and up to a
water tower from where it is fed to
the village.
Mr Nha surveyed the target
households to assess whether they
would be willing to pay for puri-
fied piped water at the Govern-
ment ceiling-rate of 25 cents/m3
(for water extracted from open
water sources). Based on market
research, he invested US$
14,000 of his own money towards
the system. But he needed more
capital to extend the pipeline. He
proposed to the interested house-
holds that they pay him US$ 20,
percent now have access to piped
water, mostly through schemes
developed since the mid to late
nineties. The current rate of
development of new schemes (70-80
per year) is so rapid that the remaining
35 percent of the population will likely
be served within the next three to
four years.
State Enterprises
33%
Investment in Piped Schemes in Tien Giang Province, Vietnam
and he would provide reduced
rate water (60 percent of cost)
until their US$ 20 was paid off.
As a result of the above efforts,
the number of connections grew
to 480 from the original 120.
Mr Nha now needed to further
upgrade the system, and buy a
larger pipeline to feed the station.
For this final expansion, he
borrowed US$ 9,000 from the
bank at the rate of 0.85 percent
per month. He anticipates that by
the end of 2003 he will have all
600 households connected.
Currently most of the
consumers use the water Mr Nha
supplies for drinking, cooking,
and animal husbandry. But
Mr Nha is confident that in the
future, more of his consumers
will appreciate the value of safe
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
water and the consumption will Mr Nha’s Water Tower
further increase.
Financing individuals, cooperatives, and user
Of the total capital invested in piped groups was respectively 27, 17, and
RWS schemes in the province, 56 percent. High user-group
investment by private investors and investment is on account of a social
water users accounts for 61 percent, structure that reaches right down to
by state enterprises for 29 percent, and the hamlet level and ensures such
subsidy from state budgets for 10 group investments remain relatively
percent. Of the capital invested by secure; and a system of social
non-state funds, the share of private incentives that ranks leaders of hamlets
on attainment of social points. These
are awarded for such achievements as
User Groups
water supply coverage, latrine use,
38%
covered pathways, hamlet cleanliness,
and crime rate reduction. Thus, hamlet
leaders are motivated to be proactive
in encouraging the development of
Private Investors these types of systems.
18%
Difference Between Accessing Water and
Cooperatives
Having Safe Water
11%
With an impressive record in the
development of piped water schemes, 5
 Tien Giang province is one of the most
exemplary in Vietnam, but there is
a downside. As in Cambodia,
consumers in Vietnam supplement
piped with rainwater that may be
improperly stored. In the absence of
social marketing strategies to foster
improved domestic sanitation
(especially water handling and hand
washing), the impact of improved water
supply systems on health is likely to be
greatly compromised.
Technology Supply Chain Networks in
Central Vietnam
In large areas of Central Vietnam,
along the populated coastlines,
groundwater is easily accessible in
shallow aquifers, of good quality, and
replenished every year through run off
from the inland mountain ranges. In
the early nineties, with UNICEF
support, the government developed
provincial level capacity to drill
shallow tubewells and install pumps,
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
mostly donated for community use.
At that time, rural inhabitants
(comprising over 85 percent of the
country’s population) collected water
from uncovered wells, either in
community locations or installed at
their homes. An installed handpump
purchased through the government
network cost about US$ 100 (to either
donor or purchaser), and due to
their centralized (Provincial Capital)
location, it took five simultaneous
orders to get the pumps released to
the countryside.
The UNICEF program set the
technological standards for both the
hardware and its installation. Capacity
was built at a provincial level that
could be used to further train other
water source developers. In 1995
International Development Enterprises
5
International Development Enterprises is a non-profit organization which establishes for-profit enterprises that supply socially beneficial technologies and services
to their consumers at an unsubsidized rate. For more information see: www.idevn.org.
6
Handpump being Used for Domestic Water Supply and Garden Irrigation
(IDE)5 launched a program to expand
on this government-managed system
by developing private sector capacity
to provide hand and electric pump
installations and after-sales services/
maintenance throughout three
provinces of Central Vietnam. The
program entailed building enterprise
capacity to manufacture pumps,
wholesale pumps and pipes, and drill
wells and install pumps. In all, about
150 branded well drilling and pump
installation enterprises were built,
along with a corresponding
manufacturer and supply network to
feed their inventory.
Promoting Dreams, Not Handpumps
The most critical intervention of IDE,
however, was not capacity building but
market development. Nearly 80
percent of the total program budget
went to finance a targeted marketing
campaign to fuel demand for the
services and technologies of these
supply networks, as well as promote
sanitary water handling, storage, and
hand washing. Key to the success of
this marketing strategy was that it
tapped into the emotions and
aspirations of the consumer base,
separately targeting men, women,
girls, and boys. It did not promote
handpumps or wells. It promoted
dreams.
The result was a rapid growth in
end-user financing of domestic
handpumps and tubewells. As the
project progressed, the marketing
support was gradually withdrawn, and
marketing tools were developed to
enable the private sector to undertake
their own promotional activities at a
cost and level of effort appropriate for
their scale of business and profitability.
The user was the principal gainer.
Decentralization of the handpump
supply/well-drilling enterprises resulted
in a decline in the pump’s cost from
about US$ 100 to around US$ 30. By
the end of the project a total of 64,000
pumps had been purchased through
26 districts of three provinces,
providing water to an estimated
320,000 people. The user invested
capital in these unsubsidized
installations totaled US$ 2.3 million.
Apart from sales tactics, the private
sector quickly learnt their best promotion
was customer satisfaction, as their
greatest sales came through referrals.
Thus the installers and pump sellers
placed a great deal of emphasis on
follow up, with efficient after-sales
servicing and spot check maintenance.
Comparative Advantages of
Private Sector’s Engagement
with RWS
Even though operating in a more
monopolistic business environment,
piped water scheme operators often
provide more localized decision
making, are less bureaucratic, and
driven by the bottom line. This
translates into better service provision
such as faster connectivity or quicker
responsiveness to pipe leaks and other
services. With a closed loop of
financial transaction between supply
enterprises and end-users, there is no
need for long-term external financial
support.
Is There Any Downside to the Private
Sector’s Presence in RWS?

I n the light of the cases studied,

several comparative strengths of the
private sector’s participation in
RWS become evident. The most
significant are:
Leveraging funds: It has been
demonstrated that a substantial part if
not 100 percent of required funds can
be raised for RWS infrastructure
through investing enterprises,
consumer fees, and consumers paying
for water source development. In the
case of the MIREP projects in
Cambodia, 70 percent of the funds
for piped scheme development are
raised jointly through investors (61
needed repairs.
Greater accountability: In the
MIREP project systems in Cambodia,
user groups are established with
elected representatives. In Vietnam
users are often investors and the
operators are elected. These
mechanisms drive social and financial
accountability that is possibly higher
than found among salaried staff in
state-run enterprises.
Cost effectiveness: Privately invested
capital inherently is used with greater
cost-consciousness than government
invested resources. In the case of
supply chains developed in Central
A key concern about the private sector
is its inability to reconcile social with
economic gains (See Box 2).
This example demonstrates the
limitation of private sector in
responding to purely social needs.
While the mechanism to achieve
social goals is regulation, it must be
cautiously balanced so that the private
entrepreneur can make a profit, and
is encouraged to stay in business.
Another disadvantage is the limited
capacity of the private sector to serve
broader public health goals. RWS
enterprises primarily respond to
consumer water supply needs –

percent) and users (9 percent). In Tien
Giang province in Southern Vietnam
the earliest piped schemes were
financed by private investment as well
as upfront amounts mobilized from
consumers. The majority of schemes
are now financed entirely by the users
while some private enterprises utilize
a combination of private funds, bank
loans, and user advance payments
that are discounted from water bills.
The handpump network and well
drilling services in Central Vietnam too,
demonstrate convincing private sector
and user investment in the water sector.
Demand-driven quality services:
Innately customer focused, private
enterprises are responsive and able to
adapt their services to changing
consumer demands. In contrast,
centrally planned, subsidized programs
often take decisions on behalf of their
consumers and provide what they
deem best for them. The service quality
of private enterprises is also better.
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
predominantly cheaper water and
Vietnam, cost reductions achieved by
more convenient access. Consumers
switching to decentralized competitive
generally are not aware of the health
distribution networks were dramatic
benefits of improved water quality. In
(falling to less than a third of the an unregulated market and where
former price). consumers do not demand water
Profitability equals sustainability: quality from suppliers, the private
RWS interventions clearly are sector is not focused on providing it.
more sustainable where private Critical factors such as how end-users
entrepreneurs are making a profit and handle, store, and treat water therefore
where end-users are paying for cannot and will not be addressed
Box 2
Private Sector is Profit Driven, Not Socially Driven
It is interesting to compare both regulated and unregulated market prices for
water. In Phnom Penh, Cambodia’s capital, the State Company that managed
water supply was privatized, but it is subject to government control on pricing.
The result is a socially designed pricing structure to which the operating
company must adhere – the less water one uses, the less one has to pay, and
the more water one uses, the more one has to pay. In a privately invested
piped scheme in Takeo province where there is no such regulatory control, to
encourage greater water use the investor has designed a price structure in
reverse, i.e., the less one uses the more one has to pay, and the more one
uses the less one has to pay.
7
 through purely private initiatives constrain more than support it. In
(See Box 3). Vietnam for instance, in developing
supply chains for handpumps, when
donors gave away free or subsidized
Pointers to Facilitating the pumps they distorted the markets. The
Private Sector provision of a donated pump
to enter business. Where direct
subsidies are considered necessary, the
challenge is to find a balance between
two extremes – encouraging business,
but not overdoing it to the extent that
it jeopardizes the likely success of

U nder varying socio-economic essentially killed the demand the intervention.

conditions existing in rural
Cambodia and Vietnam, significant
water development is taking place
without any direct public financing.
Rural investment capacity is growing,
and now approaching the level where
village-scale piped schemes are a
feasible investment. Public investments
Box 3
Not All RWS Goals Can be Met Through Purely Private Sector Strategies
temporarily, as families that were
considering buying preferred to wait
and see if they would be donated a
pump. Donor procedures created
other negative consequences. For
instance, centralized bulk purchasing
rather than through and in support of
local suppliers lead to higher installed
Governments and the aid
community need to ensure their
activities indeed support rather than
compete with or emasculate private
sector providers. While assisting in
building infrastructure through public,
supply-driven interventions does result
in increased immediate RWS activity,
competing against each other may
cause a net reduction in coverage in
the long run.

This is amply demonstrated in Cambodia. The unregulated pump-and-pipe

operators or door-to-door water sellers are not purifying water. They are Focus on Water Safety (Not Just
providing convenient access to untreated water that consumers prefer for Availability), as well as on Demand
drinking and cooking. The regulated piped scheme operators, who are treating Creation
water, are not selling that water because it is treated. They are selling the Much of the contamination of drinking
water because it is cheaper and more convenient. Along with treated water, water occurs between the water source
consumers therefore continue to purchase untreated water from alternate and the mouths of consumers. A
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

supply networks. handpump or pipe that provides safe

in the water sector need to accelerate
this growth as well as fill in for the
limitations of purely private sector
strategies in reaching the social goals
of the sector.
This section discusses some of the
crosscutting issues that need to be
considered in building a pro-private
sector platform, and realizing optimal
returns on public investments in the
sector through private sector
supportive strategies.
Public and Donor Investments Need
to Support Rather than Constrain
the Private Sector
While the government and donor
agencies may be aware of the benefits
of using the private sector to achieve
social goals, at present they probably
6
MIREP Presentation, Jean Pierre Mahe, January 2003.
8
pump costs, and less chance of the
pumps being able to be repaired
locally.
Clearly, the commitment and long-
term success of businesses has much
to do with their personal investment
risk. The MIREP projects in Cambodia
would only choose investors that had
a demonstrated business track record,
and were willing to take personal
investment risks with their own money.
Enterprises spoon fed by the social
sector are less committed and may
have decided to enter the water
business because of their access to
public subsidies. When subsidies are
provided as a sizeable portion of larger
investments such as piped schemes,
“ownership” is liable to be dictated by
political connection rather than
demonstrated willingness or capability
water has limited health impact if users
subsequently contaminate the water
prior to consumption. Current
knowledge is low – less than 50 percent
of the rural population of Cambodia
is currently aware that water can bring
diseases.6 Without the complementing
software strategies, the goals of RWS
interventions cannot be achieved
through hardware improvements
alone.
In this context, the importance
of demand creation as the most
critical intervention cannot be
overemphasized. If rural populations
want to consume sanitized water, want
to wash their hands after defecation,
want to build a sanitary latrine,
accomplishing the rest becomes
easier. Creating demand among rural
populations not only fuels growth in
services to supply that demand, but
also accentuates consumer willingness
to pay for those services. In creating
demand, there is a clear rationale for
linking marketing of the hardware and
technical services with social
marketing and health promotion
strategies.
Water For Wealth as well as Health
Consumers purchase water or develop
water resources because they attach
to it some value (convenience,
improved health, taste or other). What
the drinking water constituency fails to
consider is that the greatest demand
for water is actually for non-drinking
(irrigation or animal husbandry)
purposes. As in Cambodia and
Vietnam, when families cultivate crops
or keep animals at or near their
homes, they need to have access to
water both for drinking and other uses.
With the two sets of needs interlinked,
there is opportunity to capitalize on this
and to tackle water not as an expense
but as an earner. The “handpump
supply chain” initiative in Central
Vietnam proves sales are much higher
in areas where consumers additionally
use their water source for irrigation.
Other examples also demonstrate that
by integrating drinking water and
irrigation needs 7 it is possible to
achieve 100 percent cost recovery of
water source development even in
the poorer areas where source
development is relatively expensive.
Conclusion: Critical Ingredients
of Success
S
everal conclusions about the critical
ingredients to successful private
sector participation in RWS can be
inferred from the preceding discussion:
A Conducive and Supportive Climate
Government support for the private
sector is critical, and forms a
7
Transforming Rural Water Access into Profitable Business Opportunities; Polak, Adhikari, Nanes, Salter, Surywanshi; International Development Enterprises,
January 2002.
cornerstone of a pro-private sector
platform. In both Vietnam and
Cambodia there is recognition that the
private sector can and will play a
significant role in RWS.
Regulation is Recommended But
Requires a Balancing Act
Seen both as an opportunity and a
constraint by private investors,
Government regulation has to be a
balancing act between protecting the
user and/or the investment and over-
regulation that inhibits profitability. In
Cambodia there is currently no
regulation and in Vietnam, only partial
regulation. This has likely contributed
to the development of small pump-
and-pipe operators who were able to
function profitably with incentive to
expand and invest. Conversely, the
injection of tighter regulation in Tien
Giang province, possibly favored
cooperative and user-group
investments over the private sector,
demonstrating the impact regulation
can have in determining the structure
of non-state operators.
Issues of water pricing seem the
most critical and complex to address.
Water resource development costs,
dispersion of populations, and user
ability to pay vary from place to place
and can have a dramatic effect on
the break-even pricing of piped water
schemes. Consequently pricing
controls need to be as decentralized
as possible to attract investors to the
sector, especially in the more
challenging markets where there are
higher costs to doing business.
Capital Requirements
Utility companies supplying piped
water are inherently capital intensive,
but capital borrowing costs are often
prohibitive. For this reason, access to
long-term credit is a critical factor in
their creation and continuation. Piped
water supply businesses are also
sensitive to economies of scale. With
the cost of borrowing high, borrowing
lesser amounts for samller sacle
operations is an option, but results in
disproportionately higher operating
costs per unit of product sold, leading
to higher costs also for users.
The entry cost of businesses that
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
supply water technology, on the other
hand, depending on the geology
in their area of operation, is
comparatively low. In the supply chain
example from Vietnam, where well
drillers are able to use handboring
methods, investment in drilling
equipment and start-up inventory is
in the range of US$ 100-200. These
businesses therefore do not encounter
the same start-up capital constraints,
but unlike the piped scheme operators,
they do face much more challenging
market development costs.
Technical Skills
A key requirement of private sector
entrepreneurs is technical knowledge.
In the case of piped schemes this
would include the design and
operation of their systems (especially
the water treatment components), and
in the case of pump installation
9

enterprises, well drilling. While private
enterprises have demonstrated they are
knowledgeable, they are unlikely to
meet standards that are acceptable in
terms of preserving water resources or
providing their consumers with
adequate water quality. Undoubtedly
they require support in this area, but
the cost of such support services is likely
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
to be prohibitive. In the three examples
studied, there is evidence of the public
sector assuming these costs. In
Cambodia, the MIREP projects are
providing these services for aspiring
small-scale water supply enterprises;
IDE underwrote the costs of these
services in the Central Vietnam project;
in Vietnam’s Tien Giang province, the
government provides these services at
no official cost to piped scheme
developers and operators.
Management Structure
In the prevailing pro-private sector
climate, a variety of operational models
or organizational structures have
emerged. These include (i) Entirely
privately invested and operated (ii)
User group investment and operation
(iii) Cooperative investment and
operation (iv) User investment with
third party operation. It is too early to
determine the relative effectiveness of
10 these structures as they are relatively
new and require further crystallization
and assessment. Clearly there is no
one model, in itself a blessing because
it guarantees both flexibility and
relevance to local contexts.
Government and Donor Functions
In the final analysis, it is important to
recall that however efficient, the
private sector is not socially, but profit
oriented. Samll businesses cannot
afford, nor are they skilled in providing
social marketing or health promotion
to their consumers. Such software
should be funded by the public sector
to derive the desired health
improvements related to improved
water access and sanitation. The
public sector’s effective promotion of
improved health and hygiene
behavior will result in an increased
demand for clean water and improved
sanitation facilities. Thus governments
can fuel demand, and in parallel,
support the private sector providers
with technical backstopping to meet
the demand as it emerges.
The faster the appreciation in
governments as well as among the
donor community of the criticality of
the above function, the greater the
chances of the developing regions of
the world to gain access to adequate
water for multiple uses and benefits.
Water and Sanitation Program-
East Asia and Pacific Region
Jakarta Stock Exchange Building,
Tower 2, 13th Floor
Jl. Jenderal Sudirman, Kav. 52-53,
SCBD
Jakarta 12190
Indonesia
Tel: (62-21) 5299-3003
Fax: (62-21) 5299-3004
E-mail: wspeap@worldbank.org
Website: http://www.wsp.org
Water and Sanitation Program
Cambodia Resident Office
P.O. Box 877, Phnom Penh, Cambodia
Tel: (855-23) 211-751
Telefax: (855-23) 211-752
Water and Sanitation Program
C/o World Bank Resident Mission
63 Ly Thai To Street, Hanoi,Vietnam
Tel: (84-4) 934-6600
Telefax: (84-4) 934-6597
Credits
This Learning Note is drawn from a report entited
“Private Sector Financing of Rural Water Supply in
Vietnam and Cambodia” written by Dan Salter, with
funding from the World Bank Rural Water and
Sanitation Thematic Group.
Published by: Vandana Mehra
Special thanks to:
Jean Pierre Mahe, MIREP Project, Cambodia
Peter Feldman, Partners for Development,
Cambodia
Peoples Committee of Tien Giang Province,
Vietnam
Pictures by: Dan Salter
May 2003
The Water and Sanitation Program is an
international partnership to help the
poor gain sustained access to
improved water supply and sanitation
services. The program’s main
funding partners are the Governments
of Australia, Belgium, Canada, Denmark,
Germany, Italy, Japan, Luxembourg,
the Netherlands, Norway, Sweden,
Switzerland, and the United Kingdom;
the United Nations Development Program,
and The World Bank.
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