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Corruption in the Water Sector
Janelle PlummerPatrik Stlgren
Piers Cross
World Water Week - Stockholm22 August 2006
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The Challenge
Inefficient use of existing water sector finances
Lack of investment
Millions dying from lack of clean water and basicsanitation: 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 getswhat water when, where andhow. It determines how costsare distributed between differentactors and the environment.
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How big is the corruption problem?
Varies across the sector andnational/sub-national governancesettings
World Bank estimates of project
corruption in highly corrupt countriescould be 30-40% prior to anti-corruptioninitiative
If 30% is correctUS$20 billion could be lost in thenext decade to meet the MDGsfor WSS in Africa*
Much need for diagnostics!
* Based on a 6.7 US$ billion annual estimate for WSS expenditure requirements
WSS in South Asia
False readings: 41% ofcustomers had paid a bribe in last6 months
Illegal connections: 20% ofhouseholds admitted paying abribe to utility staffContractors: 15% excess costbecause of collusionKickbacks: 6-11% of contractsvalue
(Davis,WSP Study, 2003)
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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 ongoingservice (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 duringimplementation or continuing operation and maintenance
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Examples of corruption in the water sector
Falsified meter readings
Distorted site selection of boreholes or abstractionpoints
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 leveletc)
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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 andcapacity creates opportunity and lowers risk ofgetting caught.
Norms: Setting expectations and limitations forlegitimate 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 riskcharacteristics:
Monopolistic behavior
Large flow of PUBLICmoney
High cost of sector assets
Assymmetry of power andinformation
Sector/ technicalcomplexity
It is similar to :
Typical civil servicebehavior
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 andbudgeting
Public to private Procurement collusion, fraud, bribery
Construction fraud and bribery
Public to citizen / consumer
Illegal connections Falsifying bills and meters
PublicOfficials
Public
Actors
ConsumersPrivate
Corruption occurs
between public officials
and 3 different sets ofactors
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An Interaction Framework
PUBLICPRIVATE
interactions
PUBLICCONSUMERinteractions
PUBLICPUBLIC
interactions
Tendering and Procurement
Construction / Operations/Services
Payment Systems
Policy-making
Management
Planning / budgeting / financing
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An Interaction Framework
PUBLICPRIVATE
interactions
PUBLICCONSUMERinteractions
PUBLICPUBLIC
interactions
Tendering and Procurement
Construction / Operations Services
Payment Systems
Policy-making
Management
Planning / budgeting / financing
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PUBLICPRIVATE
interactions
PUBLICCONSUMERinteractions
PUBLICPUBLIC
interactions
Illegal connections Speed bribes
Billing/payment bribes
bribery / fraud incommunity procurement
elite capture
Administrative fraud Documentfalsification
Distortions anddiversion of national
budgets
Bribery, fraud,collusion in tenders
Fraud / bribes inconstruction
State Capture ofpolicy and regulatory
frameworks
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PUBLIC to PUBLIC
interactions
Planning and budgeting Corruption in planning
and management
Bribery and kickbacks infiscal transfers
Management andProgram Design
Appointments, transfers Preferred candidates Selection of projects
Policy-making /Regulating
Diversion of funds Distortions in decision-
making, policy-making
Early warningindicators
Monopolies / tariffabnormalities
Lack of clarity ofregulator / provider roles
Embezzlement in
budgeting, planning,fiscal transfers
Speed / complexity ofbudget processes
No.of signatures
% spending on capitalintensive spending
Unqualified senior staff
Low salaries, high perks,cf. HH assets
Increase in price ofinformal water
Anti-corruptionMeasures
Policy and tariff reform
Separation
Transparent minimumstandards
Independent auditing
Citizen oversight andmonitoring
Technical auditing
Participatory planningand budgeting
Performance based staffreforms
Transparent, competitiveappointments
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Early warningindicators
Same tender listsBidders drop outHigher unit costs
Variation ordersLow workerpayments
Single sourcesupplyChange in qualityand coverage
Anti-corruptionMeasures
Simplify tenderdocumentsBiddingtransparencyIndependent tenderevaluation
Integrity pactsCitizen oversightand monitoringTechnical auditingCitizen auditing,public hearingsBenchmarkingSSIP support mechs
PUBLIC toPRIVATE
interactions
Procurement Bribery, fraud, collusion
in tenders
Construction Fraud / bribes in
construction
Operations Fraud / bribes in
construction
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PUBLIC toCONSUMERinteractions
Construction Community based WSS
theft of materials Fraudulent documents
Operations Admin corruption
(access, service, speed)
Payment systems
Illegal connections
access /
speed payments
billing / payment
bribery
meter, billing andcollection fraud and
bribery
Early warningindicators
Loss of materialsInfrastructurefailure
Low rate of faults
Lack of interest inconnectioncampaignsNight time tanking
Unexplained
variations inrevenues
Anti-corruptionMeasures
CorruptionassessmentsCitizenmonitoring andoversight
Report cardsTransparency inreporting
Citizen oversightand monitoring
ComplaintredressalReform tocustomerinterface (e.g.women cashiers)
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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 ananti-corruption strategy?
How are these measures different from currentreform 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-pooranti-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 thesethings 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 termwater 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 corruptinteractions
in which the poor are
paying bribes to stayin the system
and receiving bribes(as officials orde-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 eitherindividually 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 waterproviders
The location
Opportunities for corruption at low access points The actors
Relationships between poor and leaders / social elite
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